Midyear Financial Checkpoint — Is It Time for Your Financial Check-Up?

I hope you are staying cool and hydrated during these summer days.

What’s in this article?

• Ways to cushion the financial impact of the strikes in the Media & Entertainment industry.
• Items to consider for a Financial Check-up — our financial health is an integral part of our overall well-being.

You may have already heard the news that two union groups from the Media & Entertainment Industry are on strike. At the time this article is written, the actors/actresses and writers representing the industry are on strike, the unions representing them are SAG-AFTRA and the WGA, respectively.

What is not commonly talked about is the real financial impact it is causing on the industry as a whole, from art directors, location managers, producers, film accountants, etc. In an article written by a staff writer at Forbes titled “The Hollywood Strike Could Exceed $3 Billion In Economic Fallout,” the writer provided some granular detail of the financial impact of the strike on various sectors within the industry — read the details here.

While we wait for some semblance of fairness in the revenue-sharing negotiations, let’s look at a few suggested ways that can be used to cushion the financial impact of the strike if you have already used up your emergency savings. These four considerations are in response to some of the main inquiries made by clients — so I hope you too may benefit from our responses.

1. Retirement Savings Withdrawals

If your intent is to dip into your retirement savings nest egg, there are 2 approaches to consider; one is a loan and the other is a direct withdrawal. A loan doesn’t generally trigger a tax impact, you are basically borrowing against your own money. These loans are generally repaid over a 5-year period and carry a strict payment plan. If you leave the job, you may be asked to pay the remaining balance in full.

As for a direct withdrawal, if you are below age 59 ½, you may be faced with a 10% withdrawal penalty and the entire amount is taxable income. On a related note, if you have a Roth IRA, you can withdraw funds from this account, and if certain criteria are met, the withdrawal may be tax-free. Check with the plan advisors directly.

2. Cut Back on Certain Lifestyle Spending

Resort back to the basics — at least until this passes. Consider home-cooked meals and local vacations. Review & disconnect certain subscriptions, empty that storage, reduce your giving, reduce charges to credit/debit cards (more below — see “budgeting”), etc.

3. Tap Into Your Transferable Talent and Skills 

Consider using your talent in another industry — a side gig or a temporary job. It would appear we are still in an employee’s market so there is some bargaining power. Hone and trust what you already know.

4. Resale 

Instead of donating, consider selling things you no longer need. Check out these virtual garage sale apps.

Let’s move along to that financial check-up. When was the last time you had a comprehensive financial check-up?

As a common practice, we generally do an annual physical health check-up which is comprised of a variety of lab work and other testing. Some among us also incorporate another type of well-being check-up, which is mental health. While it is true that both our physical and mental health are an integral part of our well-being, it is equally true that our financial “health” is a key part of our overall well-being. Yet, we tend to negate the crippling effect and the distress when our finances are messy and appear to be out of our control. Below, I hope to offer some insight by shedding a bit of light on a few things to consider when doing your financial check-up.

•Maintaining a monthly budget (i.e. an income & expenses account) 

This can help to keep spending within one’s means. Having a positive cash flow is important to a business — the same is true for individuals. Be more intentional about reviewing each transaction on your credit or debit card statements. For credit card transactions, keep in mind that each use — automatically creates or increases your loan amount (i.e., if the bill is not paid in full by the due date). If you have multiple credit cards and are unable to pay the bill in full each month — consider paying more towards the highest-interest accounts. Over time, reduce the number of credit cards you have. In an article from Equifax, one of the three credit bureaus — here is how closing a card may impact your credit score.

•Emergency Fund Savings — Review or begin your emergency savings – this is a separate bank account used for unforeseen expenses. Consider maintaining a balance that will cover at least 6 months of your day-to-day basic living expenses; the basics may include rent/mortgage/insurance/ taxes/home utilities/groceries/cellphone/transportation. Run a total of the monthly costs of the above that are applicable to you — then multiply by 6. Any excess can be moved to other saving vehicles. A financial advisor can be a helpful guide to navigating your options.

•Review all the beneficiaries on your financial accounts, including any life insurance accounts. 

Our relationships with others continue to evolve so it may be necessary to update (by adding and removing) certain beneficiaries, as applicable. A beneficiary is not always a natural person, it could be an institution(s) that supports causes that matter the most to us. Not having a beneficiary on your financial accounts is like giving the government control over your funds — in the event something happens to you and there are no legal documents that represent your estate (or your incapacity). Here are a few factors that would warrant a review; birth, death, disability, marriage, divorce/separation, etc. If you are single, please know that the above applies to you as well.

•Social Security Benefits

When was the last time you checked your social security statement? Do you know if you have enough available to you from this government-administered fund? Since the pandemic, most of us have changed our views on how we perceive — work. As a result, individuals have been considering retiring at a younger age. Yet, in reality, they simply cannot afford to not — work. One reason is — they may not have contributed enough (over the years) towards their social security funds — to get the maximum payout, and retirement savings is not enough to supplement their expenses. I encourage you to create an online account with the Social Security Administration (SDA). Here you can make updates/corrections to your account and view your earning statement periodically. While I have your attention here — your SS taxes will be much higher in 2023 since the threshold has been raised on taxable SS compensation; the increased threshold is $160, 200 in 2023, up from $147,000 in 2022.

•Unused 529 Plans

It is not uncommon that our college savings funds may still have some unused portions. The Secure Act 2.0 which was signed into law at the end of 2022 made certain changes to the unused funds in certain 529 Plans to be rolled over into a Roth IRA for the same beneficiary — certain criteria are required to be met — the maximum amount you can roll over is $35,000 per beneficiary. Please check directly with the financial institution holding custody of the funds.

•Adjust your withholding taxes by providing an updated form W 4 to your employer (providing one of the below is applicable to you): 

a. If you generally get a large refund — making the adjustment can move funds into an interest-bearing savings account.

b. If you generally owe the government — consider adjusting your filing status and/or paying estimated taxes on time — this will mitigate penalties & interest on late payment of taxes — thus increasing your over-tax liability with the tax agencies.

•Beyond Retirement Savings 

Savings towards our retirement goes without saying, however, most of us have not considered savings towards disability care. Unfortunately, Covid-19 has left some individuals unable to perform certain regular job-related duties; thus, leaving them disabled. As a result of the Secure Act 2.0, the age of disability has increased from 26 to 46 years old. This allows certain qualified individuals to have a favorable tax impact on savings for certain costs incurred for their disabled loved ones. The name of the savings account is ABLE (Achieving a Better Life Experience). Other ways we can contribute to disability expenses is to establish disability insurance – and long-term care insurance. These are ways to minimize your financial impact on certain costs in the event you are faced with certain life-altering experiences.

•Collectibles

Most of us have a unique taste (of value), for some, it may be art, coins, or antiques. For others, it may be knives, spoons, etc. Whatever it is for you, these items often have appreciated value. Consider turning these valuables into cash and paying off your high-interest liabilities. Some items may require a licensed appraiser to let you know the current market value. If you would like to be introduced to a fine art appraiser, please contact me.

The depth of a comprehensive financial checkup cannot be covered in one article; however, I hope you find something of value in the content above.

Before I close, incorporating periodic financial check-ups may seem farfetched to us — to some it may come across as being stingy and too frugal. However, I believe if it is negatively impacting our physical and mental well-being it ought to matter. With all due respect, as some of us may have been in this condition for a number of years, a financial counselor may be another route to consider.

While we offer financial statement preparation to business clients — we also team up with some of our individual clients by offering a comprehensive personal income and expense analysis. If you would like to learn more about this service, don’t hesitate to reach out.

In closing, a part of our human nature is to avoid things that are uncomfortable, yet avoiding uncomfortable situations or conversations does not mean they are not taking up space. They tend to reside among our “thoughts.” Our thoughts are always with us. Some do travel but then they do return home. I have been reflecting on the truthfulness of a comment made by a Canadian professor and clinical psychologist, Jordan B Peterson. He shared how delaying an action/activity can negatively impact our well-being — he said “Conflict delayed is conflict multiplied.” Think about it.

Let’s resolve to travel a bit lighter for our overall well-being. It may be time for a financial check-up.

Thank you for reading.
With gratitude,
Nadine

Nadine Riley, CPA
Founder, Masterpiece Accounting Group
Phone: (212) 966-9301
Email: info@mpagroupllc.com

The Masterpiece Accounting Group web, blogs, and articles are not rendering legal, accounting, or other professional advice. Tax strategies and techniques depend on your specific facts and circumstances. You should implement the information in this newsletter only with the advice of your tax and legal advisors.